U.S. goes to the mattresses over Chinese rare earths

13 Mar 2012

The Obama administration planned a big splash Tuesday to announce that it's going after China over its export controls on rare earth minerals and other specialized metals.

The public story is that this is all about "jobs" and "fairness" for Joe and Jane Punchclock, but there's another element as well, even if the White House didn't mention it -- the defense game dimension.

As we saw in DoD's industrial capabilities report last October, defense officials have acknowledged how disruptive China's controls have been on the world market for rare earths, which are essential for many of today's high-tech electronics. The report recommended that American suppliers find an alternate source for the material to take away China's stranglehold. Although that effort may be taking place even now, the Obama administration has apparently decided it can't hurt to also try a direct approach.

Here was the word from the White House:

U.S. Trade Representative Ron Kirk announced today that the United States has requested consultations with the People’s Republic of China at the World Trade Organization (WTO) concerning China’s unfair export restraints on rare earths, as well as tungsten and molybdenum. These materials are key inputs in a multitude of U.S made-products and American manufacturing sectors, including hybrid car batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum, and chemicals.

Consultations are the first step in the WTO dispute settlement process, and parties are encouraged to agree to a solution at this stage. Under WTO rules, if the matter is not resolved through consultations within 60 days, the United States may request the establishment of a WTO dispute settlement panel. The European Union and Japan also requested WTO consultations with China on this matter today.

For what it's worth, the involvement of European governments and Japan shows that Washington has been coordinating this effort for some time, and means it as an unambiguous warning to Beijing. The statement continued:

“America’s workers and manufacturers are being hurt in both established and budding industrial sectors by these policies. China continues to make its export restraints more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these materials throughout the global marketplace,” said Ambassador Kirk. “The launch of this case against China today, along with the President’s creation of the Interagency Trade Enforcement Center, reflects the Obama Administration’s commitment to make all of our trading partners play by the rules. We will continue fighting for a level playing field for American workers and manufacturers in order to grow our economy, and ensure open markets for products made in America.”

The United States recently won a WTO challenge against China’s export restraints on nine other industrial inputs. China’s export restraint measures on rare earths, tungsten, and molybdenum appear to be part of the same troubling industrial policy aimed at providing substantial competitive advantages for Chinese manufacturers.

It's a total coincidence that these export restrictions also affect the defense supply chain.

So will a WTO crackdown prompt Beijing to mend its ways? Don't hold your breath. These international proceedings are about claiming the mantle of victimhood and tarring opponents as aggressors, not getting actual changes in practice. The U.S. has lost WTO findings and kept on doing whatever caused the initial dispute; in fact, for years it was paying millions of dollars to Brazilian cotton farmers to appease them about its own subsidies to American cotton-growers.

Don't be surprised if Tuesday's gambit results in something that's just as absurd, or no action at all.